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Performance Related Pay Coverage in the UK

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  • Cowling, Marc

Abstract

A simple model of the firms’ decision to pay workers performance related pay (PRP) is tested using company level data for 1,001 UK private sector businesses. From the basic sample statistics we observe that, on average, 26.5% of workers are covered by PRP systems. Yet this hides the fact that only 50.5% of businesses have any workers at all covered by PRP. Our empirical analysis offers support for the key hypotheses drawn from Lazear type PRP models, which emphasise the relations between firm size and implementation costs, and ease of measurement, as medium and large firms are more likely to have PRP systems. However, these results are over-turned when we consider the extent of workers covered by firm level PRP systems if they are in place. Here we observe that more workers are covered by PRP in micro and small firms.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1619.

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Date of creation: 30 Jan 2007
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Handle: RePEc:pra:mprapa:1619

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Keywords: performance related pay systems; firm size; quality of work;

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  1. Marc Cowling, 2002. "The extent and determination of performance related pay systems in Scandinavian countries," Applied Economics, Taylor & Francis Journals, vol. 34(3), pages 305-316.
  2. Charles Brown, 1990. "Firms' Choice of Method of Pay," NBER Working Papers 3065, National Bureau of Economic Research, Inc.
  3. Wadhwani, S. & Wall, M., 1988. "The Effects Of Profit-Sharing On Employment, Wages, Stock Returns And Productivity: Evidence From Uk Micro-Data," Papers 311, London School of Economics - Centre for Labour Economics.
  4. Booth, Alison L & Frank, Jeff, 1997. "Performance-Related Pay," CEPR Discussion Papers 1593, C.E.P.R. Discussion Papers.
  5. Robert Drago & John S. Heywood, 1994. "The Choice of Payment Schemes: Australian Establishment Data," Labor and Demography 9402001, EconWPA, revised 04 Feb 1994.
  6. Marc Cowling, 2000. "Performance related pay in Belgium and The Netherlands," Applied Economics Letters, Taylor & Francis Journals, vol. 7(10), pages 653-657.
  7. Garen, John E, 1994. "Executive Compensation and Principal-Agent Theory," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1175-99, December.
  8. Meyer, Margaret A & Milgrom, Paul & Roberts, Donald John, 1992. "Organizational Prospects, Influence Costs, and Ownership Changes," CEPR Discussion Papers 665, C.E.P.R. Discussion Papers.
  9. Edward P. Lazear, 1996. "Performance Pay and Productivity," NBER Working Papers 5672, National Bureau of Economic Research, Inc.
  10. Lazear, Edward P, 1986. "Salaries and Piece Rates," The Journal of Business, University of Chicago Press, vol. 59(3), pages 405-31, July.
  11. John MacDuffie, 1995. "Human resource bundles and manufacturing performance: Organizational logic and flexible production systems in the world auto industry," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 48(2), pages 197-221, January.
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